Bumpy Road Led to Alliance Of AOL, Google
Two weeks ago, when Time Warner Inc. was on the cusp of signing a sweeping online deal with Microsoft Corp., a team of executives from the media company's AOL unit traveled to Microsoft's headquarters in Redmond, Wash., to make sure everything was in order.
Context & Ripple Effects
AOL’s future had been under board review since October, drawing interest from multiple large technology companies. The contest narrowed to Google and Microsoft in early December before Time Warner moved toward selling Google a 5% AOL stake.
The agreement turns that bidding process into a deeper commercial alignment: Google gains an expanded search-marketing relationship with AOL, while Microsoft is left outside a distribution partnership it had pursued.
First-order effects
- Google pays $1 billion for a 5% stake in AOL and expands its search-marketing alliance with the Time Warner unit.
- Microsoft loses the AOL partnership opportunity after competing with Google for the deal.
Second-order effects
- AOL’s search and advertising inventory becomes more closely tied to Google, giving Google a stronger route to AOL’s online audience and making Microsoft’s search-business challenge more acute.
- Time Warner gains a strategic investor and a search-marketing partner rather than relying on a transaction with Microsoft.
Third-order effects
- The contest for AOL signals that major online services are becoming strategic distribution assets for search and advertising platforms, not merely media properties.
- If similar alliances proliferate, portal owners will have greater leverage to seek equity investment alongside search and advertising agreements.
The trend: Search platforms are competing for exclusive or deeply integrated distribution relationships with large consumer internet services.